Cutting Corners Helps China Make Better Cars

BMW visits CH-Auto

History tends to repeat itself – in different ways. One of the secrets of Japanese quality was a shortage of money. Bad quality was seen as waste – known as the detested “muda” to scholars of Kaizen. Lines had to be made more flexible; re-tooling had to be made easier, all because there was no money to waste. Likewise, China is getting better at making cars. One reason: It’s getting better at cutting corners, says a report by Reuters.

The man who wrote it knows Japan and China well. Norihiko Shirouzu was the Wall Street Journal’s China correspondent, now he is the man on the Chinese car beat for Reuters. He says:

“Paring back on crash tests, skimping on frills, simplifying designs, using cheaper materials and, in a departure for the industry, outsourcing most of their design and engineering are having a profound effect on the cost bases of China’s dozens of car makers. Some are now able to sell cheap and cheerful small cars for about 40,000 yuan ($6,350) – less than half the price of a plain vanilla Toyota.”

The outsourcing part is totally different from what the Japanese did and still do. Eight out of ten cars sold by independent Chinese automakers are the handiwork of three independent design houses: CH-Auto, IAT Automobile Technology Co. of Beijing; and TJ Innova Engineering & Technology Co. of Shanghai.

CH-Auto is a legacy of failed Chrysler. The company was established in 2003 by a small group of jobless Chinese engineers who had trained with Beijing Jeep, a former joint venture between BAIC and American Motors, later Chrysler. According to the report ..

“CH-Auto and its rivals say they have moved beyond aping foreign designs. Instead of copying the shape of a component or an entire foreign car, they try to match its performance as well – often successfully – even as they improvise and simplify the original design to cut costs. The aim is to make cars affordable to China’s emerging middle class, people who are earning 50,000 to 60,000 yuan a year ($7,900-$9,500).”

The competition in Japan already is taking note. Says Shiro Nakamura, chief designer at Nissan:.

“This is a warning shot to the established engineers who have told their management time and time and again that this is the minimum cost they can achieve with their existing design and production methodology. Now the Chinese are saying they can cut another 30, 40 percent of the cost.”